A Blessing in Disguise?

The macro point

The ceasefire in the Middle East announced overnight from Tuesday to Wednesday is good news. However, the economic crisis is here, and we will not escape it. Unanswered question: how long will inflation last? More statistics will certainly be needed to know this and to closely monitor what is happening at the Strait of Hormuz. Each ship is equipped with a GPS. We therefore know exactly how many ships manage to cross the strait. In recent days, there have been about twenty a day compared to 100 before the war. When we have again 40 to 50 ships a day, trade will really resume and we can talk about normalization. All this will depend on the ongoing negotiations between the Americans and the Iranians. The uncertainty around the conflict is far from cleared.

Fortunately, not everything is negative. Today, we decided to look at the glass half full. Following the 1973 oil shock, France launched the Messmer plan to gain energy independence. Carried by the slogan "all electric, all nuclear", this program led to the rapid construction of 58 reactors within two decades, profoundly transforming the country's electricity network and strengthening its energy autonomy. And if the current crisis was also an opportunity for rebound, accelerating the energy transition?

In the short term, rising energy prices have favored oil, gas, and coal producers not located in the Middle East, particularly American companies. However, structurally, recurring price shocks that affect fossil fuels are a strong incentive to invest in renewable energy and energy efficiency. In Europe, politicians have prepared a two-pronged strategy that has already been used in the past: guarantee short-term supply – which can even include reopening coal plants in some countries – while accelerating the deployment of low-carbon technologies to reduce long-term reliance on imports. In this context, the European Commission convened its Gas Coordination Group on March 4 to monitor flows, storage, and demand for liquefied natural gas. This strategy is directly inspired by that implemented in 2022, which drastically reduced gas consumption while increasing the production of clean energy.

The shock of 2022 was an accelerator of the energy transition. Between 2019 and 2024, EU countries installed enough wind and solar capacities to avoid burning 92 billion cubic meters of gas and 55 million tons of coal by 2024, according to the German think tank Agora Energiewende. The war in Iran should favor a broader and substantial deployment in the coming months and years with the clear goal of no longer being as dependent as now on the Middle East and the region's straits.

A small hooray in passing. France reacted very quickly when the crisis erupted. A few weeks ago, the government bought two years of global uranium production. That's huge. This will allow us to operate our nuclear power plants, which are essential for the French energy mix. However, this risks destabilizing this rather narrow market and leading to a surge in uranium prices. In any case, we must salute the speed with which the government acted. Barring any unpleasant surprises, this should help avoid an energy crisis this winter.

Technical point

The announcement of the ceasefire obviously led to a renewed appetite for risk in financial markets: sales of dollar assets and the return of buying flows to risk currencies. Even before that, we noted the euro's strong resistance, largely explained by expectations of rate hikes by the European Central Bank (ECB). The money market estimates it will raise its rates three times this year for a total of 75 basis points, then drastically reduce them in 2027. Caution, these expectations are subject to change. On the Asian currencies side, a welcome relaxation has been observed in recent days. They were heavily penalized in recent weeks. For example, the Indonesian rupiah reached a historic low against the U.S. dollar during last Monday's session. The market estimates that Asia will be the most affected by the economic fallout from the conflict. It’s true. The ceasefire does not change that.

The supports and resistances displayed below indicate the low and high points within which prices are expected to move during the week.

Announcements to follow

This is an important week to gauge how much the inflationary surge related to the war in Iran will impact Western economies. Tomorrow, U.S. producer prices for March will be released. It should sting. Take plastic found almost everywhere; its price has soared since late February. The price of HDPE (high density polyethylene used for milk bottles) has increased by 75% while that of LLDPE (linear low-density polyethylene used for bags) has climbed by 77%. Unlike the 2022 crisis, producers have a limited capacity to pass inflation increases on to consumers because they no longer have Covid savings and the period of wage increases is behind us. In Europe, wage moderation is back. Consequently, company margins should fall in the coming months.

An important point to watch to see if we are facing a lasting inflationary shock or not: the fiscal response from the States. By trying to do well with all-out aid, they risk exacerbating inflationary pressures. Better to have a few tough months rather than a year or more.

The information presented in this publication is provided for informational purposes only and does not constitute investment advice, an offer to sell, or a solicitation to buy, and should not be used as the basis or considered as an inducement to engage in any investment activity.